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Top SFR Owners Plan to Grow in 2017

Top SFR Owners Plan to Grow in 2017

Strong demand from tenants, new technology tools and better management are helping the top owners of single-family rental (SFR) houses reach their business goals.

“Six months ago, the broader investment community questioned whether the single-family rental business would continue to grow,” says Diane Tomb, executive director of the National Rental Home Council, an advocacy group for the SFR industry. “Now there is a tremendous amount of optimism.”

The biggest owners and managers of SFR assets report strong results from their portfolios. Some have plans to expand to take advantage of strong demand for rental housing and banks’ increased willingness to lend.

Ready to grow

“A few years ago people said this couldn’t be done,” says Thomas Brock, President and CEO of Silver Bay Homes, an SFR owner and manager, speaking at the Single-Family Rental Investment Forum, held December 7 in Phoenix. “We are beyond that now.”

New technologies help companies manage single-family rentals. “Our technicians in the field can engage our experts on what investments need to be made,” says Brock. “Technology can also anticipate HVAC problems or leak problems.” Other technologies help managers enter homes and ease the challenges of completing accounting tasts for large portfolios.

As the industry grows, some banks are also becoming more willing to lend money on SFR properties. “Single-family rentals has become a little more of an accepted asset class,” says David Singelyn, CEO of American Homes 4 Rent, another sector player. “The availability of financing is much greater… When we started, the only capital available was private equity.”

Rental houses are now beginning to be valued as income-producing properties, whereas before their valuation came primarily from the homes’ market value, according to Fred Tuomi, CEO of Colony Starwood Homes.

The fundamental demand for housing will continue to support SFR assets, Tuomi adds. The Millennial generation continues to live in rental housing rather than buying homes, even as they grow older. Somewhat higher interest rates may also make it more difficult for these generation to enter homeownership, Tuomi says. “There is a shortage of quality rental housing. We are providing a need at just the right time.”

Plans for growth

Thanks to efficient management and strong demand for housing, leading single-family owners are once again planning to buy properties. “We have some ability to grow,” says Singelyn. “Our stocks have performed well and our cost of capital has come down. Now we can buy assets that are close to even at replacement cost.”

There is also a lot of room for institutional investors to become a larger part of the SFR business. Currently, only about 1 percent of all single-family rental homes are owned by institutional investors. “There is a lot of room for growth,” says Tomb.

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